The Financial Conduct Authority has systemic failings, said MPs.
Photograph: David Levene/Guardian

The Financial Conduct Authority made serious errors last year over the handling of of review of the life insurance industry, according to a report by a committee of MPs, which questions whether the City regulator is suffering from a systemic weakness in its culture.

In its last report before parliament is dissolved for the general election, the Treasury select committee said the City regulator had lost sight of its objective to make sure markets work well and had not acknowledged the problems in the way it operates.

The committee’s findings are the latest development in the fallout from a briefing to the Daily Telegraph in March 2014 about its plans to review the life insurance industry. That briefing wiped £3bn off the value of insurance company shares and sparked a furious reaction from the major insurers that the FCA regulates.

The FCA breached its own rules – by allowing a false market in shares to be created – by waiting until 2.27pm on Friday 28 March to issue a clarifying statement on the Telegraph’s report, which had appeared at 10pm the previous night. The FCA would have fined a firm which had behaved in the same way, the MPs said.

“The FCA made a serious error in March last year. By breaching its own listing rules, it created a false market in life insurance shares. In doing so it put its own statutory objectives at risk. The evidence from this episode suggests that problems may still exist at the FCA. It is not yet clear to the committee that the FCA has fully grasped this,” said Andrew Tyrie, the Conservative MP who chairs the committee.

A report by Clifford Chance lawyer Simon Davis, published in December by the FCA, found the regulators’ strategy for dealing with the media was high risk and lacked control. The select committee accuses the FCA board of a “misjudgment” in not immediately ensuring that the report by Davis was independent, and said Davis made a mistake in allowing his entire report to be seen by the FCA board – chaired by John Griffith-Jones.

The FCA said it accepted the criticism in the Davis report and admitted it fell short of the standards expected of it. “The FCA is determined to learn the lessons and ensure that this will never happen again and will study the committee’s recommendations and respond in due course,” the regulator said.

Tyrie said the two executives who received the most criticism in the report by Davis were Zitah McMillan, head of communications, and Clive Adamson, director of supervision. “Yet their departures from the organisation, announced by the FCA two days before the publication of the Davis Report, were presented as being unrelated to the incident.

“This might reasonably lead to suspicions that Mr Adamson and Ms McMillan were being made to take the blame in a contrived media-handling operation for the mishandled pre-briefing, while allowing the FCA to claim that this was not the case,” Tyrie said.

The committee’s report said there was concern that Martin Wheatley, the boss of the FCA, did not accept that the FCA’s communications strategy was to blame for the fallout in the market the day after the report about the insurance review appeared.

The committee said the events in March were a self-inflicted distraction for the FCA and called on the regulator to examine its communication methods, conduct an external review of its effectiveness and set out where senior responsibility lies.

“It is not clear that the FCA has yet fully grasped the extent of the failings revealed by Simon Davis’s report,” the committee said, adding its recommendations were “an examination of whether the FCA is suffering from a systemic weakness in standards and culture”.